Philip Hammond’s first Autumn Statement as Chancellor of the Exchequer has suggested there may be a deterioration in Britain’s economic prospects as the country goes through the process of leaving the European Union.
Hammond said that the UK would be forced to borrow more than previously forecast over the next four years, while growth levels are also expected to be lower between now and 2019.
The Office for Budget Responsibility now thinks the economy will grow by just 1.4% in 2017 in comparison with the 2.2% it had forecast last March.
The Chancellor also unveiled new housebuilding and homebuying programmes as well as extra investment in infrastructure in areas of high population growth.
There were fewer surprises than MPs had come to expect during George Osborne’s period in office, but Hammond did also announce further rises in the amount of money workers can earn before they pay tax as well as an increase in the new national living wage.
As expected, the Chancellor said that the government did not plan to make any changes to the current triple-lock protection on the state pension, which means payments rise every year by at least 2.5%. However, it remains to be seen whether the triple-lock will be maintained beyond the next general election, due in 2020.
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Hammond also announced he was launching a consultation into whether cold-calling by financial firms in relation to pension and other types of investment should be banned as part of a wider crackdown on pension-related fraud. No firm proposals have yet been put forward, however.
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New savings scheme
In recognition of the low interest rates that savers have faced for most of the past decade, Hammond said that the government would introduce a new three-year savings bond through its National Savings & Investments bank.
The bond, which should be great news for super-savvy savers who are looking to boost their returns, is likely to be introduced next April with an annual interest rate of around 2.2% -- comfortably above the typical yield on such an account. Deposits are expected to be limited to just £3,000, however.
Rise in tax-free allowance
The government has also committed to further rises in the tax-free personal allowance: this is due to go up to £11,500 in April 2017 and will increase further to £12,500 by 2020. Over the same period, the starting earnings for higher-rate tax will increase to £50,000.
Workers on low pay will also benefit from the fact that the national living wage will be lifted from the current £7.20 to £7.50 an hour from the start of the next financial year.
Mixed news for motorists
Hammond confirmed that the government would maintain the freeze on fuel duty for a seventh straight year in 2017, saving the typical driver £130 a year. But the Chancellor said that there would be a further increase in the tax imposed on motor and other types of insurance, such as home cover.
Just over a year ago, the rate stood at 6%: it was raised last November to 9.5% and then to 10% last month. From June 2017, however, it will be 12%.
The Conservatives will also spend £220 million on dealing with traffic “pinch points” on the UK’s strategic road network – these are areas of particularly high congestion on Britain’s motorways and major A roads. This is part of a wider increase in spending on infrastructure, including a new capital injection into housebuilding.
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Ban on letting agents’ fees
The charges imposed on new tenants by letting agents are to be banned in a bid to help renters get a fairer deal. Such fees, which can run into the hundreds of pounds, are supposed to cover expenses such as credit checks and general admin. But campaigners have long claimed they are used simply to profiteer from people who have no option but to pay them.
Landlords’ groups have warned, however, that if such fees are passed on to landlords by the agents, the policy could simply lead to a rise in rental rates.
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Clampdown on salary-sacrifice schemes
Salary-sacrifice schemes involve employees getting certain benefits such as company cars in lieu of cash earnings. This typically means they pay less tax than if the money was paid as part of their normal salary.
From next April, however, some types of salary sacrifice will be phased out, although this will not apply to the more popular types of the scheme such as pension contributions or childcare.
The Chancellor also said that his first Autumn Statement would also be his last.
Hammond has decided to reform the way the government introduces tax changes. From next November, there will be an annual main Budget every autumn in which all the government’s major tax policies are revealed well in advance of the start of the subsequent financial year.
The March Budget will be replaced from 2018 with a Spring Statement – but this will simply be a review of the previous year’s economic forecasts, and will not be used to make policy changes.
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